Amid concerns that the COVID-19 omicron variant was likely to dash the economic recovery, the latest data suggests that the omicron variant is less severe than previous variants and is less likely to cause hospitalizations. This is positive news for the economic recovery. Consumer spending has witnessed tremendous growth since pandemic restrictions were eased, buoyed by government stimulus spending, a sharp pickup in job creation, and substantial pent-up demand created by pandemic restrictions.

According to a report from the Commerce Department, consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% in November after inching up 1.4% in October. The U.S. unemployment rate was at a 21-month low of 4.2%.

Also, consumer spending is expected to accelerate owing to the rise in digital payments, accessible consumer credit facilities, and the widespread use of prepaid card services. These factors are expected to drive the credit card industry’s growth, especially during the holiday season. According to a Research and Markets report, the global credit card market is expected to grow at a 1.1% CAGR to $107.69 billion in 2025. Given this backdrop, we think it could be wise to bet on fundamentally sound credit cards stocks such as Visa Inc. (V), American Express Company (AXP), Capital One Financial Corporation (COF), and Discover Financial Services (DFS).

Visa Inc. (V)

V is a global payments technology company that enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. It also administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions.

On December 20, 2021, V announced that it had acquired Currencycloud, a global platform that facilitates banks and fintech companies to provide innovative foreign exchange solutions for cross-border payments. During its fiscal fourth quarter, ended September 30, 2021, V’s net revenue increased 29% year-over-year to $6.60 billion. The company’s non-GAAP net income came in at $3.52 billion, up 42% year-over-year. And its non-GAAP EPS increased 44% year-over-year to $1.62.

Analysts expect V’s EPS for the quarter ending March 31, 2022, to increase 20.3% year-over-year to $1.66. Its revenue for fiscal 2022 is expected to increase 17.2% year-over-year to $28.25 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past month, the stock has gained 11.1% in price to close yesterday’s trading session at $218.17.

V’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

V has a B grade for Sentiment and Quality. It is ranked #12 of 54 stocks in the Consumer Financial Services industry. Click here to see the additional ratings of V (Growth, Value, Momentum, and Stability).

American Express Company (AXP)

AXP is an integrated payments company that provides credit and charge cards to consumers, small businesses, mid-sized companies, and corporations globally. The company’s products and services are sold to diverse customer groups through various channels, including mobile applications, affiliate marketing, and third-party vendors.

On December 8, 2021, AXP’s Kabbage launched Kabbage Funding, which offers small businesses flexible lines of credit between $1,000 – $150,000. AXP’s initiative is expected to ensure that small businesses have access to working capital within minutes of applying without any hassles. So, the company could witness increased demand for its solution as businesses expand their reach.

AXP’s net income for the fiscal third quarter, ended September 30, 2021, increased 70% year-over-year to $1.82 billion. The company’s total revenues net of interest expense increased 25% year-over-year to $10.92 billion. In addition, its EPS came in at $2.27, up 74.6% year-over-year.

For its fiscal 2021, AXP’s EPS is expected to increase 155.2% year-over-year to $9.62. In addition, it surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue for the quarter ending December 31, 2021, is expected to grow 22% year-over-year to $11.41 billion. The stock has gained 38.6% in price over the past year to close yesterday’s trading session at $163.83.

AXP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. AXP also has a B grade for Sentiment. It is ranked #13 in the Consumer Financial Services industry. To see the other ratings of AXP for Growth, Value, Momentum, Stability, and Quality, click here.

Capital One Financial Corporation (COF)

COF is a diversified financial services holding company that offers a range of financial products and services to consumers, small businesses, and commercial clients through digital channels, branches, cafes, and other distribution channels. It operates in the credit card, consumer banking, and commercial banking segments.

On November 9, 2021, COF announced the launch of its new travel card named Venture X. It allows customers to earn everywhere, with 2x miles on every purchase, enhanced earn on travel, including 10x on hotels and rental cars, and 5x on flights booked via Capital One Travel. The best-in-class benefits are expected to enable COF to cash in on the pent-up demand for travel.

COF’s net revenue for its fiscal third quarter, ended September 30, 2021, increased 6% year-over-year to $7.83 billion. The company’s net income came in at $3.10 billion, up 29% year-over-year. Its EPS increased 34% year-over-year to $6.78.

Analysts expect COF’s EPS for its fiscal year 2021 to increase 416.2% year-over-year to $26.74. Its revenue for the quarter ending March 31, 2022, is expected to increase 10.9% year-over-year to $7.74 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 51.3% in price to close yesterday’s trading session at $145.59.

COF’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The stock also has a B grade for Value and Sentiment. COF is ranked #9 in the Consumer Financial Services industry. Click here to see the additional ratings of COF for Growth, Momentum, Stability, and Quality.

Discover Financial Services (DFS)

DFS is a financial services company that offers credit card and electronic payment services and checking and savings accounts. It operates in the digital banking and payment services segments. The company has a strategic network agreement with Arab Financial Services.

On July 13, 2021, DFS and SIBS MB signed a strategic agreement to increase the global acceptance footprint for both organizations. The agreement will likely allow Discover, Diners Club International, and network alliance cardholders to use their cards on the SIBS MB network at merchant and ATM locations across Portugal.

For its fiscal third quarter, ended September 30, 2021, DFS’ total revenue net of interest expense increased 2% year-over-year to $2.77 billion. The company’s net income was $1.09 billion, representing a 42% year-over-year rise. Its EPS increased 44% year-over-year to $3.54.

For its fiscal 2021, DFS’ EPS and revenue are expected to increase 388.6% and 8.9%, respectively, year-over-year to $17.59 and $12.07 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 31.5% in price over the past year to close yesterday’s trading session at $115.77.

DFS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. DFS has a B grade for Sentiment also. Within the Consumer Financial Services industry, it is ranked #5. To see the other ratings of DFS for Growth, Value, Momentum, Stability, and Quality, click here.

V shares fell $0.38 (-0.17%) in premarket trading Thursday. Year-to-date, V has gained 0.36%, versus a 29.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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